On Your Own: How to Manage the Finances of Single Retirement

Between battles over Medicare and Social Security, disappearing pensions, and a Wall Street meltdown that decimated the investment portfolios of millions of Americans, the path to a secure retirement is more tenuous than at any time since the 1960s. And thanks to advances in health care and smarter lifestyles, those shaky finances are having to sustain us for longer.

"It's not uncommon for a retiree to live 20 to 25 years after retirement," says Caroline Delaney, executive vice president at Hillis Financial Services -- a far cry from the four years that the average retiree could expect to enjoy 50 years ago.

To make things worse, a growing number of baby boomers have to factor in an extra complication: They're facing the difficulties of retirement and old age without a partner by their side.

Planning Ahead

When it comes to the health problems that arise in old age, married retirees can usually rely on their spouses for support. But for singles, long-term care can be more problematic: "Many divorced couples have grown children who can help them out," notes Jack Hillis, president of Hillis Financial Services. "But they often don't like to impose on their kids."

This becomes a particular issue when it comes to end-of-life decisions. "Typically, a married couple will give each other the medical power of attorney, which gives them the right to 'pull the plug' in case of incapacitation," Hillis notes. "As single people approach old age, they need to find a trusted friend or child to take that responsibility."

Not surprisingly, many elderly people build a social circle to help them deal with the strains of old age. "More and more, we're seeing what we call a Golden Girls situation, in which elderly people move in together for companionship and to share expenses."

But while living together can save money on household expenses, it doesn't do much for health care costs. People who live into their 80s, Hillis says, face a 50% chance of needing some form of long-term care -- and, without a spouse or companion, the price of help can add up quickly. Hillis encourages his clients to begin preparing for these costs early: "For people in their 50s who are still single, we suggest that they look at long-term care insurance."

Lifelong Singles

Hillis notes that, depending on their circumstances -- and their spouses' level of life insurance -- widows and widowers may not face major economic hardships. But for lifelong singles, a comfortable retirement requires a great deal of planning.

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"Singles need to accumulate as much equity as a married couple," says Delaney. This is largely due to the nature of retirement costs: "Many expenses are fixed," she explains. "They are the same, regardless of whether you're married or single."

With this in mind, Hillis suggests that lifelong singles should begin seriously planning for retirement in their 30s, when they are likely to have more than sufficient income. "Singles often don't have many of the high initial expenses -- like college educations for children -- that married couples have to cover," he explains. "We suggest that they plow money into their 401(k)s and work on [moderating] their spending. They have to realize that they can't spend all their money on expensive toys."

Real estate can be a great investment, Hillis notes. In addition to providing a place to live, it can also provide equity for use in retirement. "Someone who has rented needs to build up other assets," Hillis emphasizes. "This is why they need to start retirement planning as early as possible."

While retirement is tough for the never-married, it can be even more brutal for the divorced. Even under the best of circumstances, Hillis notes, a marital split wreaks havoc on finances: "Divorce is the opposite of compound interest. Your finances are cut in half." For couples who divorce later in life, however, it can be particularly devastating. "If you divorce in your 40s, you have plenty of time to plan," Hillis notes. "But when you divorce later, there's less time to prepare for retirement."

Among baby boomers, this problem continues to get worse. Boomers made up a large part of the record wave of divorces in the late 1970s and early 1980s, and are still dissolving their marriages at a stunning rate. Almost a quarter of today's divorces are "gray divorces" -- the dissolution of couples who had been legally bound for 20 years or more.

In addition to slashed assets, many of these divorced retirees and soon-to-be retirees also have to deal with their own financial ignorance. "In many marriages, there is one spouse who handles all the family finances, and the other is in the dark," Hillis notes. "We advise that both spouses should know about their finances and be familiar with their financial advisers."

Across the board, Hillis and Delaney note, education is vital. Facing old age alone can be a scary prospect, but extensive planning, a clear understanding of finances, and a realistic perspective about retirement and health care costs can make it easier -- and a lot more comfortable.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.

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The 10 Worst States for Retirees in 2012

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On Your Own: How to Manage the Finances of Single Retirement

High property taxes and a high foreclosure rate weigh heavily on Wisconsin. On the other hand, Social Security income is exempt from its income taxes (which are also high).

Ninth place was virtual tie, but Maine offers lower property taxes than the No. 8 state. It does, however, have higher income taxes. The governor has said he wants to make retirement income tax-exempt in Maine, but it hasn't happened yet.

New York wins (or, rather, loses) the toss-up with Maine because of its median property taxes -- the fourth highest in the nation -- and general tax burden. Generous exemptions for Social Security and pensions, as well as a high standard deduction, count in the Empire State's favor. Cost of living, of course, and the bitter winters are heavy strikes against New York -- unless you're rich, or a member of the Polar Bear Club.

With no income tax exemptions for pensions or Social Security, Minnesota puts a heavy tax burden on retirees -- the nation's fourth highest levy, according to TopRetirements's calculations.

The blight in the Garden State: taxes. New Jersey levies the nation's highest median property tax ($6579), and has the highest income tax burden as well, according to the Tax Foundation. On top of that, it's facing a big budget deficit, and features a lofty cost of living. But most pension and Social Security income is tax-exempt for couples making less than $100,000.

The Bay State is often called "Taxachusetts," and with good reason: Property taxes are among the nation's highest, and the flat rate applied to earnings beside Social Security, which is exempt (like government pensions, but not private ones), can prove costly indeed.

The Green Mountain State may be scenic, but it harbors high median property and income taxes, and its cost of living is in the top 10. Winters are described locally as "too cold to snow."

Rhode Island's scenic too, but is facing choppy economic waters, with underfunded pension and health care liabilities, as well as budget deficits. This despite the fact that the Ocean State has the fifth highest median property taxes paid.

The Prairie State is in dire fiscal straits, with terrible figures for pension funding, deficit spending, unemployment and foreclosures. The official response out of the capital in Springfield? An increase in income taxes. Most pension and Social Security income is not taxed in Illinois, but the state's 5% flat tax eats into other earnings, such as investment income.

Locked in a dead heat overall with No. 2 Illinois, Connecticut won its spot at the top of the list because of higher property and income taxes, as well as a greater cost of living.